Finance

It is so natural that you have heard about foreign exchange market, also called as FX or Forex.

As we all see there are lots of articles mentioning about the advantages of investing in Forex. Well, actually yes, the writers may be right, there are more advantages than other instruments. But on the other hand, I can tell you about many dangers, risks and tricks about forex market.

As a result, if you want to be a real forex market investor, you have to, not have to, you must know some points about trading in forex.

Lets start talking about Forex market.

First things first: A little bit Forex History

Well, Forex is not an old market. Just about twenty years ago, Forex was only a market that the countries’ national banks took part. And also we may mention about some international or multinational companies. Thats all, there were no individual accounts and small investors in Forex. It was a virtual platform that generally national banks exchanged currencies between each other.

After 1970 ’s, when the 1980 ‘s came, some new regulations and investment terms met with forex. By these regulations, individuals, lets say small sized investors found opportunity to trade in Forex.

Trading in Forex

Because of not having a cash amount as national banks, there had to be new definitions about trading and account types. So leverage system was born in 1980 ‘s to let individuals for trading in Forex. By the help of the leverage system, a small investor found opportunity to trade. For example, $100.000 with his $1.000 cash in his account. That means, for this account, you can open a position which has a volume of $100.000 by blocking your $1.000 from the account as a deposit to handle it in Forex.

So as you see, even a small investor can buy or sell $100.000 with $1.000 cash in his account. I am sure you all can see that leverage system lets the investor to open a position ( buy/sell )easily, but on the other hand, it also makes the investor to take more risks on the position he opened.

As I mentioned above, an investor opens a position by buying or selling some amount of currency relative to other currency. For example, if you want to buy 1 lot of USD against CHF, then it also means that you sold 1 lot of CHF against USD. Both sayings are the same and true.

In forex, investors buy or sell currencies, but it is obvious that, it has to be done with the convertible money units, which its country has a stable economy. That is because of not willing to have a liquidity problem afterwards. You have to find another investor who wants to buy what you want to sell. If not, you can’t find any buyer and there will be a liquidity problem.
And also, if the countires’ economy or political situation is not stable and strong enough, there can be many big price moves or changes happen on the values. So thats too dangerous for the investors in Forex.

Then now, we may underline the main obligation: Reading, researching for all countries’ situation of politics and economy. Thats the main point. An investor in Forex market must be well educated about politics and economy of all countries.

The second obligation : Finding a broker to open an account in order to open and close the positions ( transactions ). The investor has to find a reputable brokerage company and also a broker. It will be the best if your broker has registration to Futures Commision Merchant in Commodity Futures Trading Commision. That can lower the risks in forex trading, but never makes it zero. Forget about zero risk.

Opening an account in a brokerage company is all about filling out a complicated form and reading instructions, Terms Of Service etc. In addition to this, some initial deposit of between $1.000 - $10.000 ( depends on the brokerage company ) will be offered for a standart account.

Now in 2000 ’s, online Forex trading is possible. There are a lot of brokerage companies for those investors coming to Forex market for the first time. They can provide his new customers to simulate their accounts. This situation gives a great opportunity to understand and live trading as real, and lets them to have a little bit experience.

In addition to that Forex simulations, there are some very useful and popular tools that are always used in Forex trading such as, real time quotes, news headlines, price charts, technical analysis tools.

We all know that there are lots of investors who would like to invest some money in Forex, and they always would feel happy to have someone do all the trading, market watch and transactions for their accounts. So that all means that choosing the right brokerage firm and/or broker is one of the most important thing for the account holders.

Because the forex market trading is built on using time effectively and urgent decisions, the brokerage firm and/or broker you are working with must have these specialties.
The firm or broker must have to be accessible whenever you want 24/7.

My advice is take notes of some broker and brokerage candidates first. Then test all of them carefully about the points I mentioned before. You may test them by phone calls and/or e-mail contacts. For the candidates taking long time to respond to your calls have to passed. Because this shows that you will waste time to reach them for transactions and you won’t be able to catch the suitable quotations, prices etc.

When you choose the quickly accessed firm and/or brokerage, it is time to observe their market watch, trading strategies and decisions. Market watch means following the world economy news and the attitude of the markets according to the news. Trading strategies can be separated into two different views of the market. First, short term trading strategies and second, long term trading strategies. In short term trades Forex is an instant business. Profits and losses will be instant. But in long term trades there won’t be instant profits and losses. In forex market, long term views and trading strategies are more healthy and easier.
Time by time you will become friends with your broker, you will appreciate and trust his words and use his/her opinions for giving decisions about the transactions.

To be continued…

The global foreign exchange market is the largest market of the world. Daily conversion of USD 1,2 trillion is turning over daily. It gives many reasons of the popularity of the foreign exchange to buyer, but under most importantly the permission the available outside capital, which are 24 hours on the day high liquid its and the costs it possessing very low, which is connected with the trade. Naturally many commercial organisms participate purely considering the foreign exchange exhibitions, which were created by their bringing in and export activities, but the main part of the conversion is explained by the financial establishments. The investment in foreign exchange remains mainly the area of the large professional players on the market - funds, cash and investors. Nevertheless any investor with the necessary knowledge of the functions of the market use can pull from the advantages indicated above.

MARGIN TRADING

The course of currency is acted normally on the margin. A proportionally small deposit can direct positions much larger in the market. For the action of the principal currencies, for example SaxoBank requires of the 1% payments of entry. That wants to say that, to act million dollars, you must place right USD 10.000 on safety. That wants to say that a modification, in the value at the base of your trade gives the legends 2%, of the 200% profits or a loss on your deposit. For specific examples to see downwards. As you can see, this one requires a very disciplined bringing together aiming at the action, since occasions of profit and dangers possible are indeed very large. Please refer of Forex rate and conditions for diffusions, margins and current conditions.

BASE AND VARIABLE CURRENCY

For example you will buy USD and will become the euro to sell. Or buy euro and Japanese yen or every other combination of dozens of large acted foreign exchange. But there is always a long (bought) and short on the part of (sold) at a trade, which means that you speculate on the perspective of one of the foreign exchange, which strengthens regarding the others.

In a buyer position of USD against the Euro indicates that the profit or the loss will be obvious in the change of the quantity of credit euro and output for the two transactions. In other words your profit or loss in euro is set up, which admits as foreign exchange of the prices is.

DEALING SPREAD

Your dealer gain will estimate, who offers a buy and a selling level for your trade to you. As soon as you accept the offered price and receive confirmation from the dealers, the trade took place. There is no necessity to designate an exchange floor. It gives retards no other time-consuming. This is because of the flowing phase prices possible, which are also a large advantage at times of the fast moving markets: You can see, where the market acts and you know whether your orders are not implemented.

The dealer gain is usually 3-5 points in the normal market situations, e.g. USD/EUR 1.7780-85. This means that you can sell US dollar against the euro with 1.7780 and buy with 1.7785.

There are no further costs, commissions or exchange fees. This guarantees that you can receive many dealers in and from your trade at very low slipping and therefore the actives are more accepted, a typical day in USD/EUR price rockers of 150-200 shows represents.

STOP LOSS ORDERS

As you can see in top of description, there are important occasions and dangers in the foreign exchange markets.

Competitive traders could know a profit/loss of the daily newspaper 20-30%. This one requires the loss of stop strict in the positions which move against you. Fortunately, there are not daily limitations on trading and not of restrictions on the meeting of purse contrary to the weekend. That wants to say that there is almost always an occasion to react to the movements in the money markets and with a bottom. Obviously, the market can shift much fast and a stop loss order is in no case a guarantee to leave on the desired level. But the principal danger is really a case on the weekend, in which all the markets are closed. This one arrives occasionally there much of important political cases, like the meetings G7, specifically normally for weekends. For the speculative action, we always recommend the placement of protection stop loss orders.